Opinionated @ CFE

Raising Taxes And Fiscal Responsibility

Sep
28

Ever since Reagan, the unending call of conservatism has been to cut taxes and cut ’em deep. The theory is that with massive cuts in revenues, Congress would have no choice but to start cutting back on spending. What we saw through the Reagan, Bush I, and Bush II years is that the plan backfired. Instead of paring back on spending, Congress showed an incredible lack of willpower and whipped out the national credit card to make up the difference. Apparently the “starve the beast” approach didn’t work despite 20 years of White House policy enforcing it, so why are conservatives still marching behind it?

That’s the question that Bruce Bartlett asked last week in Forbes. Since huge deficits don’t make people call their Congresscritters and demand reductions in spending, perhaps raising taxes across the board to cover the increased cost of government largess would do it. Let me say right now with no qualification that we should all be expected to pay the full cost of the government services which we are receiving. If it can’t be paid for with taxes or savings, the money simply is not there to spend.

I know, it sounds like crazy talk, the same kind of crazy talk that President George H. W. Bush was talking in 1990 when he expended a mountain of political capital to institute PAYGO rules. These same rules were likely responsible for large balance-sheet surpluses in the 90’s. True to form, though, Congress used all of it and then some on increased spending leading to an even larger national debt. (Not much of a surplus if you ask me.) If this situation sounds rather recent and familiar, replace the word Congress with California legislature and you get an idea of how this story ends.

So what are we to do? It seems that there is an insatiable demand for increased services and decreased taxes from the citizenry and the federal government has been trying to placate both. I say raise taxes to pay for these services and see what happens. It can’t be any worse than saddling future generations with a debt costing many times what it does now and just maybe a few more people will be willing to give on their demands for government services.

7 Responses to Raising Taxes And Fiscal Responsibility

  1. It may be too late – now that Congress has learned to swipe the credit card it will be hard to convince them to raise taxes, just as it is impossible to convince them to cut spending. My biggest opposition to raising taxes is that it will be an excuse to raise expenditures – no gain at best. A balanced budget requirement would be immensely helpful right about now (or 8 years ago). If such a bill were followed then there might be some benefit to raising taxes.

  2. While Congress might not have much restraint at first, they would kick off a revolt of epic proportions if they got into a spiral of raising taxes and spending. I’m personally okay with that outcome since it would likely spur people to action (something more meaningful than loudmouth TEA Party protests). Our aversion to that kind of pain is why we’re in this situation to begin with.

  3. “Since huge deficits don’t make people call their Congresscritters and demand reductions in spending”

    But isn’t that what we’re seeing now? All of the political tumult going on has largely been spurred by dissatisfaction with Republican spending followed by Obama’s quadrupling the deficit his first year and seemingly endless appetite for ever more government programs.

  4. Voters didn’t do it with Reagan, they didn’t do it with Bush I, they didn’t do it with Bush II. Heck, they haven’t done it since FDR. We have run rather consistent deficits for decades without any kind of reprisal, even when those deficits are in the hundreds of billions of dollars. Apparently the pain of deficits doesn’t hit pocketbooks enough to cause some real change. The pain of taxes, however, probably will.

  5. Though the dollar amount of deficits has increased, the percentage of gdp that the deficits represent hasn’t so much. In effect, the country has been carrying a credit card balance that to them seems affordable given their income level. But now the country’s income level has dropped while at the same time the credit card balance has quadrupled. This has led to significant consternation and rethinking of how the nation’s checkbook is handled.

    Though I understand the logic of higher taxes = making people realize the costs of the programs they want. By running deficits with low taxes on low earners we in effect get everything for free. Or at least we don’t see the direct connection.

    However, there’s a couple of problems with this. First is that it’s not just current year deficits that are the problem. It’s long term programs we’ve installed by using the national credit card that if we just raise taxes to pay for will set a nasty precedent on how to get your stuff passed. But also, and perhaps more important economically, is that because of politics any tax increase will be on the very wealthy. Which means two things, namely the economy will suffer as a result of higher taxes and us regular people still won’t see the cost of the programs we want. The latter being perhaps the most important because it means the higher taxes solution won’t actually solve the problem of us being disconnected from the real costs.

  6. Bush very heavily pushed the GDP argument, that it didn’t matter how much debt we had or what deficits we ran so long as the debt-to-GDP ratio was level or decreasing. I don’t buy that argument since sooner or later, it comes crashing down (as we’ve seen in the last year). Once you have a recession, the ratio skyrockets as our addiction to pain-free spending demands more credit to make up our losses. The debt cycle lifestyle has to end and it ends when you feel the pain of what things actually cost.

    Politicians find it very tempting to try and put taxes on small segments of the population to maintain popularity. I say nuts to this. They need to find the courage to make us all hurt and pay the price for being complicit in bad policy.

  7. I agree that sooner or later it comes crashing down, and we’re seeing some of that now. Which is kinda the point. It’s crashing down and people are finally taking notice. As long as the gdp was growing, no one really felt any deficit pain. But now they do. Which in a round about way supports the starve the beast theory.

    I like the idea of everyone paying taxes to support the programs they want. But that’s not the tax system we currently have. And any overhaul of our current system to make more people share the burden of services will mean lots of people not being reelected. ie it’s hard to see a real push for it happening.

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